Measuring trade in value added: how valid is the proportionality assumption?

Arianto Patunru and Prema-chandra Athukorala

Economic Systems Research, 2023, vol. 35, issue 2, 292-300

Abstract: For countries that have only aggregate (‘competitive type’) input–output (IO) tables, value added in exports is commonly estimated using the ‘proportionality assumption’ to separate imported-inputs from domestically procured inputs. We test the validity of this assumption using non-competitive type IO tables, which contain separately compiled domestic- and imported-input matrices, for Indonesia, Thailand, Malaysia, Taiwan, and Australia. The results show that the proportionality assumption leads to an overestimation of domestic value-added in exports, and that the magnitude of the bias becomes amplified when the export composition of a country shifts from primary products to manufactured goods through integration into global production networks.

Date: 2023
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Working Paper: Measuring trade in value added: How valid is the proportionality assumption? (2019)
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DOI: 10.1080/09535314.2021.1965549

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